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Technology

Your Startup Doesn't Have Funding? Maybe That's A Good Thing

Early money can encourage waste, over-hiring, and obscure product market fit.

Your Startup Doesn't Have Funding? Maybe That's A Good Thing

[Image: Flickr user Rumble Press]

For all the hundreds of funded tech startups in places like Austin or Seattle active today, there are thousands of unsung entrepreneurs working away at a project, seeking the promised land of early-stage funding. That money may not be all it's cracked up to be though, or so says one startup founder who's been there.

Jean Derely, cofounder of online marketing software company WooRank, says he and his team made a mistake by seeking funding early on. They found no investor interest, which turned out to be an advantage: Forced frugality taught the team how to get the most from what funding they did have, plan better, and not hire excess staff.

But there are varying opinions on the question. Forbes contributor Kevin Ready says to be on the safe side, entrepreneurs should find early funding if possible, because it insures you'll have the wind at your back in the form of bigger budgets, more nimble decision-making, and less personal risk.

"Now, more than ever, startups can start up without investor funding, but taking on investors may be the difference that makes the difference," Ready says.

At least one entrepreneur backed up that opinion on the Hacker News discussion surrounding Derely's WooRank post.

"There are lots of startups that simply couldn't exist without early investment — anything with high upfront costs combined with economies of scale. I founded a payments processor three years ago — this is a good example of such a business. It's possible we could have bootstrapped, but it would have been a very different kind of business." —tomblomfield on hackernews

Neil Kane of TechCoktail goes even further, erring on the side of taking as much investment as one can early on. It's better than running out of money later.

"While the challenge of raising money to get your company off the ground is frustrating to be sure, it pales in comparison to the eternal anguish of raising money in distress after you’ve already started the business and are accountable to investors, customers, and employees."

What if you don't know any investors? Then do things that get their attention, like making money. All this talk about funding may be a moot point if the startup in question isn't generating revenue already. Any investor will tell you that's one of the first things they look for when scouting new investments. Some suggest bootstrapping until you reach $100,000 per month in sales, because few investors will take a company seriously if they don't already have that kind of revenue.

AngelList founder Naval Ravikant says the key to making all this happen is finding "product market fit." This is that magical sweet spot when your product is happily satisfying the needs of a target market segment. The phenomena is elusive, but if it happens, you just might be making good money and won't need to take early funding.

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